Morgan Stanley followed Goldman Sachs Group Inc. in ramping up bullish bets on Chinese assets as the swift dismantling of Covid Zero policies boosts the nation’s growth outlook.
(Bloomberg) — Morgan Stanley followed Goldman Sachs Group Inc. in ramping up bullish bets on Chinese assets as the swift dismantling of Covid Zero policies boosts the nation’s growth outlook.
It sees the yuan advancing to 6.65 per dollar by year-end, which amounts to a 1.8% gain from current levels, strategists including Laura Wang wrote in a Jan. 9 note. The bank also sees Chinese shares topping global performance rankings in 2023. It raised its end 2023 index target for the MSCI China Index to 80, which implies a 13% gain from Monday’s closing level.
“We believe the market is under-appreciating the far-reaching ramifications of reopening and the possibility that a robust cyclical recovery can occur despite lingering structural headwinds,” Wang’s team wrote, adding that they expect the economy to expand 5.7% year-on-year versus the consensus estimate of 4.8%.
The yuan and Chinese stocks have been on a tear on reopening optimism along with supportive steps for the nation’s the tech and property sectors. The currency posted its best two-month performance since 1994 while the MSCI China Index has climbed 49% from an October trough. Goldman Sachs lifted its year-end yuan forecast to 6.5 per dollar while estimating further gains for Chinese shares.
Morgan Stanley expects yuan strength to be front-loaded, with the currency strengthening versus a basket of peers in the first half of the year, before moderating in the second half following a recovery in outbound travel.
Reports and commentaries in Chinese media on Tuesday also showed expectations for a further gain in the currency as the domestic economy recovers and overseas funds flow into the country.
However, the optimism on the yuan isn’t universal. Citigroup Inc. expects the yuan rally to peter out on a pick up in imports and resident outflows. UBS Group AG sees the yuan at 6.8 per dollar at year-end.
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